A "Sucker Breakdown" Fools Investors... Again!

You’ve Been Hoodwinked [Morning Reckoning] November 07, 2023 [WEBSITE]( | [UNSUBSCRIBE]( A "Sucker Breakdown" Fools Investors… Again! Baltimore, Maryland November 07, 2023 [Greg Guenthner] GREG GUENTHNER Dear Reader, The same old story that’s hoodwinked investors since the dawn of time… You’ve heard of a sucker rally… But what about a sucker breakdown? We might have just witnessed one asinvestors jettisoned their stocks last week just before a huge snapback move that began with frantic short-covering rallies — and could end with an epic melt-up into the holidays. Here’s how it all started… It was looking bleak for the bulls heading into November. The major averages had just logged their third straight monthly decline, with the S&P giving back every cent of its summer gains. A messy geopolitical landscape continued to dominate the headlines as war intensified in the Middle East, fueling fresh protests throughout Europe and the US. A Fed meeting was also looming large over the markets. Any new hawkish comments threatened to trigger a fresh wave of selling, potentially shoving key stocks and sectors below support. Sentiment was in the gutter and the bulls were nowhere to be found. I’m sure there were more than a few investors yanking their money out of stocks, loading up on puts, and doing their best to resist smashing the panic button and retreating to the bomb shelter to wait out the crash. But as we discussed [last week]( these are the exact market conditions that should prompt you to watch for a bounce. Panicking while everyone else is panicking rarely pays. In fact, this type of herd behavior consistently punishes emotional investors – the folks who blindly buy stocks without any clue as to what to do next. Today, I’m going to show you why I’ve been on the lookout for a sharp rally, why the market bounced where it did, and how you can regroup if you missed last week’s big move off the lows. [Insider Reveals A Breakthrough New Way To Profit From AI]( Do not… I repeat… [Do NOT buy any AI stocks until you watch this short video in full.]( [Click here to learn more]( You’re about to discover a breakthrough new way to profit from the rise of AI that has never been revealed before. the types of companies we target with this strategy have shown top-performing gains like 1,167% in 11 days, 1,779% in 13 days and even 2,900% in just 3 days. Starting with $5,000, that’d be enough to walk away with profits like $63,350, $93,950 and $150,000 – all in a matter of days. But you must hurry… (As this is time sensitive). [Click here now for details on this new AI strategy.]( [LEARN MORE]( A Technical Tourist Trap On Oct. 20, the S&P 500 closed below its 200-day moving average for the first time in seven months. Moves like this always seem to attract the technical tourists. These folks love to draw their little lines on charts and swear that stocks have to obey their every command. Of course, any break of one of their magical long-term moving averages spawns more than a handful of breathless reports proclaiming that the market is looking wobbly and cratering below an important support level. But as any seasoned trader will tell you, a moving average isn’t a mystical line that releases some sort of stock-killing poison when price breaks beneath it. In reality, it’s simply a smoothing device that helps us identify the primary trend. More importantly, you tend to see longer-term buyers stepping in to buy when price moves below a rising 200-day moving average. And in case you’ve been stuck under a rock (or inside a bear cave) this year, the 200-day bottomed out during the second quarter and has been pointed higher ever since. [chart] Again, there are no guarantees in the market — and a breakdown from these levels was (and still is!) a possibility. But rushing to sell everything or short the market on this so-called breakdown would be a fool's errand. It’s also worth noting that this break below the 200-day took the S&P right back to a confluence of support levels marked by the February and April highs. This was a key area the S&P needed to top to ignite the summer rally, so it should be viewed as strong support for the index, regardless of the relationship to the 200-day moving average. It’s Rally Season Despite the three months of choppy descent we experienced after the averages topped out in late July, last month’s drop shouldn’t have set off any alarm bells. Not only are pullbacks and downside moves perfectly normal events, there are also seasonal trends the market has closely followed this year — specifically how the S&P performs during a pre-election year. Earlier this year, I showed you the pre-election year cycle roadmap, specifically how the S&P tends to top out during the summer months in the pre-election cycle and remain in a range until a year-end push. One important caveat when dealing with seasonality data is it’s the trend that counts. And for the entire year, the S&P is more or less following these seasonal trends. Is it a perfect match? Absolutely not. But our composite continues to offer a general idea of what we should expect heading into 2024. While the large-cap index did rally more than I expected into the end of July, it remained well within a normal pre-election year cycle. August is generally a weaker performing month, giving way to a choppy, corrective fall. The market then typically finds a bottom in late October, and investors enjoy a final push higher into December. Sound familiar? This is exactly what we’re seeing play out in the markets right now. To recap: We’ve seen the S&P undercut a longer-term moving average and retest an important support area — all while investors loaded up on downside bets as sentiment sank to extreme bearish levels. The sucker breakdown is in full effect. There are plenty of reasons to feel bearish about the market. But right now, price is telling you to hold your nose and buy into a potential year-end melt-up move. What do you think? Will the rally stick? Or are the bulls still flirting with disaster? Let me know by emailing [here](mailto:feedback@dailyreckoning.com). Best, [Greg Guenthner] Greg Guenthner Contributing Editor, Morning Reckoning feedback@dailyreckoning.com [Critical Customer Service Notice]( [Click here to learn more]( Hi, this is Dustin Weisbecker, the Director of Customer Service for Jim Rickards. And I’m trying to reach readers about [a massive change we’ve just implemented to Strategic Intelligence.]( As a reader of Jim’s work, this change could have a direct impact on you and your subscription. What’s more, this change will be going into effect immediately – in fact, you may have already noticed it. To bring you up to speed, I just recorded a short video explaining all of the important details about this upgrade. [Click here now.]( [LEARN MORE]( In Case You Missed It… The Rabbit Ears of Unhappy US Taxpayers Sean Ring, Editor [Sean Ring] SEAN RING Dear Reader, I’ve lived in Italy for 19 months and still can’t speak Italian fluently. My six-year-old son, Micah, speaks excellent Italian, and his friends’ parents, my peers, are more than happy to ignore me and talk with him. It saves me a job. But to improve, I started translating words and phrases I often use. It’s a common strategy to improve speaking ability. A few Fridays ago, I stood in Piazza San Secondo with my Brazilian-Italian friend, Angelo, whose son plays with Micah. We speak terrible Italian to each other because he’s got to translate his Brazilian-Portuguese into Italian, and I’ve got to splutter through English in my head before any semblance of Italian comes out. We both just bought houses and got onto the subject of finances. Shaking our heads, Angelo asked me how I was doing. I said, “Niente ma orecchie di coniglio.” He looked at me quizzically, then his eyes widened, and then he burst out laughing. Nothing but rabbit ears. A man with rabbit ears. Every married man knows exactly what this phrase means mere seconds after hearing it for the first time. Usually, it’s with respect to a spendthrift wife, a recently made tuition payment, or a gigantic bar bill. But now, married or not, male or female, we’re all up shit’s creek together. While Paul Krugman can’t understand why people are so down on this allegedly thrilling economy, it’s easy to see why. Everyone’s already broke. A Few Facts First A few days ago, Visual Capitalist published [this excellent infographic on Global Wealth](. I’m only showing the top ten. Click on the link to see the whole thing. [Click here]( to see a larger version of the image above The two stats used are mean and median. Mean is a simple average. We take the total wealth and divide it by the total number of adults. However, averages are prone to big outliers. In this case, Warren and Charlie, Kim and Kylie, LeBron and Magic. These billionaires pull up the average. That is, the number is positively skewed. In the US’s case, the mean is much, much higher than the median partly because of the wealth inequality inherent in a capitalist economy and mostly because of the naked cronyism, enabled by an extravagant central bank and actioned by an irresponsible Congress, that passes for capitalism in America nowadays. Right now, the average adult has about a $551,400 net worth. Not bad. But the median US adult — the one in the middle of the pack - has only a $107,700 net worth. From [Visual Capitalist]( Many experts believe that median wealth provides the most accurate picture of wealth since it identifies the middle point of a dataset, with half of the data points above this number, and half falling below it. In this way, it is less impacted by extreme values and gives a good representation of the “middle of the pack.” The number of US adults is 257 million, assuming Visual Capitalist used the 2020 census and counted over-18s as adults. If that’s the case, 128.5 million adults have less than $107,700. And most of that $107,700 will probably be home equity. When you hear about “the hollowing out of the middle class,” this is precisely what people mean. But that’s not all. Let’s look at the big three economic numbers: GDP growth, inflation rate, and unemployment rate. For this, we’ll enlist the help of John Williams of [Shadow Government Statistics](. GDP Growth My friend and colleague Doug Hill posted this on our editorial channel, and I just laughed. First, I had forgotten about John Williams. He’s a Reagan-era economist who was disgusted with how the USG fudged the numbers. Williams became very popular after the 2008 crash. Here’s his estimate of GDP versus what the USG tells us: [Williams writes]( The SGS-Alternate GDP reflects the inflation-adjusted, or real, year-to-year GDP change, adjusted for distortions in government inflation usage and methodological changes that have resulted in a built-in upside bias to official reporting. Concisely, Williams’ estimate of US GDP growth hasn’t registered a positive number since before Covid. So the whole “economy is growing” fairy tale turns out to be just that: a fairy tale. Inflation Rate While we were panicking about a 9.2% inflation rate, Williams was decidedly more pessimistic: [chart] [According to Williams:]( The ShadowStats Alternative CPI-U measures are attempts at adjusting reported CPI-U inflation for the impact of methodological change of recent decades designed to move the concept of the CPI away from being a measure of the cost of living needed to maintain a constant standard of living. At its peak, Williams had inflation closer to 17%. Right now, his work suggests that inflation is still in double digits. That’s a claim many would agree with. Unemployment Rate And unemployment isn’t nearly as rosy as Krugman thinks. [chart] We’re still hovering around Depression-era numbers if you believe Williams. Many people do. [Williams explains (bolds mine):]( The seasonally-adjusted SGS Alternate Unemployment Rate reflects current unemployment reporting methodology adjusted for SGS-estimated long-term discouraged workers, who were defined out of official existence in 1994. That estimate is added to the BLS estimate of U-6 unemployment, which includes short-term discouraged workers. The U-3 unemployment rate is the monthly headline number. The U-6 unemployment rate is the Bureau of Labor Statistics’ (BLS) broadest unemployment measure, including short-term discouraged and other marginally-attached workers as well as those forced to work part-time because they cannot find full-time employment. But the USG’s efforts to fix the situation border on the farcical. Rearranging the Deck Chairs on the Titanic Before I get to the USG, let’s enjoy a bit of comedy. No, not from Paul Krugman. We’ve abused that privilege enough. This comes from Greg Ip, former Fed watcher and now editor at The Wall Street Journal. In his [Capital Account column]( the sagacious Ip wrote this: I suspect a lot of pessimism about the economy is “referred pain.” Just as part of your body can hurt because of injury to another, pessimism about the economy may reflect dissatisfaction with the country as a whole. Lately, there has been a lot to be dissatisfied about: intensifying political and cultural conflict and intolerance, the pandemic, the border, mass shootings, crime, war in Ukraine and now the war in the Middle East. In other words, Americans are so worried about the wider world that they feel it in their wallets. Really? In my experience, most Americans don’t give a rat’s ass about countries they can’t find on a map… But they are incredibly astute about how and when their government is picking their pockets. And just when you thought you were getting relief that Congress has forgotten about Ukraine, along comes Israel. [Zero Hedge]( summarized it succinctly: - The government will run out of money (again) in roughly two weeks, requiring Congress to act (again). - According to Democrats and GOP Neocons such as Mitch McConnell and Lindsey Graham, America needs to send billions of taxpayer funds to both Israel and Ukraine, and won't consider any legislation that doesn't combine the two. - House Republicans under newly minted Speaker Mike Johnson (R-LA), as well as a group of Senate Republicans, want Israel aid separated from Ukraine aid, while the Biden White House wants to jam a $105 billion foreign aid package ($14B to Israel, $60B to Ukraine) through Congress. - The House's plan (if they can even pass it) to separate Israel aid from Ukraine aid is DOA in the Senate, while both the Senate's combined package and the Biden admin's package is DOA in the House. - The House and the Senate also need to pass 12 appropriations measures for 2024, or face a 1% across-the-board cut on defense and nondefense spending, per the debt ceiling bill passed earlier this year. In an update, Biden already vetoed the House bill that would have (GASP!) separated Israel from Ukraine. But the real reason Biden was pissed off was that the GOP planned to offset $14.3 billion in aid to Israel by reducing the IRS's roughly $60 billion boost from the Inflation Reduction Act ($80 billion less negotiated cuts). I have to say, “Nice try, Mr. Speaker. Well played.” But what I don’t see is any help for everyday Americans. Where’s a middle-class tax cut? Where’s relief for Maui or East Palestine? And where the hell is increased funding for the border? All these taxpayer dollars are going out of the country, and none is going for inward investment. Wrap Up Unless and until the citizenry wakes up, this will continue. If I were Joke Biden, I’d take advantage until I came out of the Oval Office feet first. As for the Congressional gerontocracy, they’ll keep going until they get Feinsteined. All the best, [Sean Ring] Sean Ring Contributing Editor, The Morning Reckoning feedback@dailyreckoning.com X (formerly Twitter): [@seaniechaos]( Thank you for reading The Morning Reckoning! We greatly value your questions and comments. Please send all feedback to [feedback@dailyreckoning.com.](mailto:dr@dailyreckoning.com) [Greg Guenthner] [Greg Guenthner, CMT,]( is chief strategist at Forge Research Group. He has spent the better part of the past two decades developing long-term and short-term strategies with a single goal in mind: to help everyday investors generate outstanding returns and control their financial futures. Greg’s charts, analysis, and insights have appeared in Marketwatch, Forbes, Yahoo Finance, and many other financial publications. [Paradigm]( ☰ ⊗ [ARCHIVE]( [ABOUT]( [Contact Us]( © 2023 Paradigm Press, LLC. 808 Saint Paul Street, Baltimore MD 21202. 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